We have been studying the mechanism of action of molecular chaperones in DNA replication and proteolysis. We found that three E. coli heat shock proteins, DnaK (the Hsp70 homologue), DnaJ and GrpE are required for plasmid P1 DNA replication in vitro. We discovered that DnaJ and DnaK, in an ATP-dependent reaction, activate the sequence specific DNA binding of the P1 initiator protein, RepA, by converting RepA dimers to monomers. The monomer form binds with high affinity to oriP1 DNA. GrpE is absolutely necessary for RepA activation in vitro with DnaJ and DnaK when the free Mg2+ concentration is maintained at a level of about 1 mM by a metal ion buffer system. GrpE decreases the affinity of DnaK for nucleotides and lowers the requirement for Mg2+ for DnaK ATPase activity, suggesting that GrpE facilitates nucleotide exchange from DnaK by altering the conformation of the active site. We used the P1 RepA activation reaction as a model system to look for other molecular chaperones and discovered that ClpA, the regulatory component of the ATP-dependent ClpAP protease, activates the sequence specific DNA binding activity of RepA, like DnaK, DnaJ and GrpE. Our results demonstrate for the first time that ClpA has molecular chaperone activity and suggest that the Clp family is a new class of ATP-dependent molecular chaperones. ClpAP degrades RepA, suggesting that an essential energy-dependent step in protein degradation is the tagging and unfolding of substrates. The RepA activation system, in which a single substrate is either activated or degraded by its interaction with a single ATP-dependent chaperone, provides a model system for studying the mechanism of action of ATP-dependent degradation.